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WASHINGTON — The government might be paying incorrect subsidies to more than 1 million Americans
for their health plans in the new federal insurance marketplace and has been unable to fix the
errors, according to internal documents and three people familiar with the situation.

The problem means that potentially hundreds of thousands of people are receiving bigger
subsidies than they deserve. They are part of a large group of Americans who listed incomes on
their insurance applications that differ significantly from those on file with the Internal Revenue
Service, documents show.

Under federal rules, consumers are notified if there is a problem with their application and
asked to upload or mail in pay stubs or other proof of their income. Only a fraction have done so,
according to the documents. And, even when they have, the federal computer system at the heart of
the insurance marketplace cannot match this proof with the application because that capability has
yet to be built, say the three individuals.

So piles of unprocessed “proof” documents are sitting in a federal contractor’s Kentucky office,
and the government continues to pay insurance subsidies that may be too generous or too meager.
Under current rules, people receiving unwarranted subsidies will be required to return the excess
next year.

The inability to make certain the government is paying correct subsidies is a legacy of computer
troubles that crippled last fall’s launch of HealthCare.gov and the initial months of the first
sign-up period for insurance under the Affordable Care Act.

Under White House pressure, federal health officials and the contractor, Serco, are this weekend
beginning to step up efforts at resolving a variety of inconsistencies that have appeared in
applications. One White House official, speaking on the condition of anonymity about internal
discussions, said that White House and federal health officials are “all on the same page that the
issue needs to be resolved as soon as possible.”

Because the computer capability does not yet exist, the work will start by hand, said two people
familiar with the plans.

It will focus at first not on income questions, but on another roughly 1 million cases in which
people enrolled — or tried to enroll — in health plans and ran into questions about their
citizenship status. Throughout the sign-up period that ended last month, flaws in HealthCare.gov
blocked many naturalized citizens or permanent legal residents, requiring them to submit
immigration documents that are, like the income information, caught in a backlog.

The income information is significant because the government is, for the first time, providing
subsidies to help working-class and middle-class Americans buy private health plans. Under the
federal rules, an application is flagged for special checking if the income someone says that they
expect this year is at least 10 percent above or below the most recent income in their IRS tax
returns.

According to various recent internal documents, income discrepancies are the most frequent kind
of inconsistencies among insurance applicants, and they exist on 1.1 million to 1.5 million of
nearly 4 million inconsistencies overall. The federal rules say that consumers have 90 days after
applying to try to prove that their information is correct and, if an inconsistency is not resolved
by then, whatever the federal records show is assumed to be correct. But because of the trouble
verifying incomes, the government has not lowered or raised anyone’s subsidies.